German-American Discourse on Politics and Culture

May 10, 2019

Financial Illiteracy / Finanz Analphabetismus

Kevin Kühnert, chair of the Social Democrat's youth wing, certainly seemed to strike a chord when he suggested that capitalism had run its course and that large enterprises "such as BMW" should be "collectivized". Here Kühnert and his supporters display a profound ignorance of market economics. Enterprises - even large ones - come and go; their survival depends on an ability to innovate and adapt to prevailing market forces. Check out the list of Fortune 100 companies of 1980. How many are still around and still in the top 100? Some, like Union Carbide, have been swallowed up other companies, others, like (then) retail behemoth Sears, are just barely alive still, and then others, like Eastman Kodak (200,000 employees), have been put out of business by technological innovation - in this case, Instagram (25 employees when acquired by Facebook). This is the "Creative Destruction" (Joseph Schumpeter) of market capitalism.

Even the survival of BMW was never a sure thing. As the economic historian Magnus Brechtken writes in the Süddeutsche Zeitung, it was the timely investment and intervention by Herbert Quandt in the immediate postwar years that rescued the brand from certain extinction:

And Brechtken makes another good point: although the Quandt family still has a controlling interest in BMW, a large portion of the shares are owned by British and American pension funds, who gladly invest in DAX-listed shares, even as most Germans avoid stocks altogether:

There seems to be widespread ignorance on how wealth is created (and, indeed, destroyed) which then leads to widespread embracing of socialist fantasies - all the more surprising given the negative example of 40 years DDR. Germany didn't become the wealthiest nation in Europe by collectivization of its businesses, but rather through constant innovation, prudent investment, and far-sighted management - especially of its Mittelstand enterprises.